In its review, the commission noted that Medicare pays the same rate to hospitals in the 340B drug program as non-340B hospitals. Yet 340B hospitals by definition receive Part B drugs at a much lower rate than Medicare pays them. Moreover, the 340B drug program bases eligibility criteria for the program on hospitals with the greatest share of Medicaid patients.

MedPAC has long held that Medicare should not subsidize the Medicaid program. If Medicaid rates are too low, the Medicaid program should raise them. On that premise, it developed the following recommendation, urging Congress to direct the Secretary of Health and Human Services to do the following:

Update inpatient and outpatient payments by the amount specified in current law

Direct the program savings from reducing Part B drug payment rates to the Medicare funded uncompensated pool

Distribute all uncompensated care payments on data from the Medicare cost reports worksheet S-10. The use of S-10 uncompensated care data should be phased in over 3 years. (The S-10 worksheet is a cost report completed by every hospital that quantifies its charity care and "bad debt.")

The recommendation would be budget-neutral, according MedPAC's policy analysts. Hospitals would still receive a 1.75% update, under current law -- about $3 billion overall -- but beneficiaries would see a slight drop in Part B cost-sharing.

Chairman Francis "Jay" Crosson, MD, of Palo Alto, Calif., said about one in five Medicare beneficiaries would see a direct savings from the changes. He said it was also possible that Medicare beneficiaries would see lower MediGap premiums.

The $300 million in savings accrued from the 10% Medicare cut to 340B hospitals would be redistributed to hospitals with the greatest amount of uncompensated care, MedPAC's policy analysts explained. In previous discussions, MedPAC considered directing those savings to the federal treasury but the commission has since changed its view.

Instead of using "Medicaid days" -- the cumulative number of days of inpatient care -- as a proxy for uncompensated care to determine program eligibility, the recommendations would urge that a different data source, the S-10 worksheet, be used in its place.

"The primary impact on hospitals would be a redirection of funds from hospitals with high numbers of Medicaid inpatient days towards hospitals that provide large amounts of inpatient and outpatient uncompensated care," a policy analyst for MedPAC told commissioners.

However, only a portion of the savings, one-third of the discounts, would be channeled to hospitals with high uncompensated care costs; the other two-thirds would remain with a given hospital.

Speaking to MedPage Today, Jeff Davis, JD, counsel for legal and policy affairs at 340B Health, an advocacy group representing 340B hospitals, expressed concern about the changing eligibility requirements. "This is fundamentally changing how the program works, because it's using a different set of criteria to determine who gets access to the benefits of the program."

Some critics of the changes questioned whether MedPAC has the authority to offer input on a program that is overseen by the Health Resources and Services Administration. Crosson disagreed. "This is in fact a Medicare expenditure. Therefore it's appropriate for MedPAC to analyze and make recommendations about that expenditure and also its impact on beneficiaries," he said.

Kuhn said he noticed "a bit of mission creep here ... I wonder if the actions we're taking would make that public service program less effective."

Nerenz said he agrees that MedPAC is within its jurisdiction, but was concerned that shifting to the S-10 worksheet from the Medicaid-day criteria has a "Powerball feature." The big winner would be government hospitals, but the majority of 340B hospitals come out as losers, he said.

He also argued that by shifting the focus from hospitals with high Medicaid populations to those with higher shares of uncompensated care, the recommendations would unfairly reward states that had not expanded Medicaid. "What we're doing is we're taking dollars from states who have done something and moving it to states who have done nothing."

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